Geneva, October 25, 2005 - STMicroelectronics (NYSE: STM)
reported financial results for the third quarter and nine months ended
October 1, 2005.
Revenues, Gross Profit, and Margin Review
Net revenues for the third quarter were $2,247 million, up 3.9% sequentially
from the $2,162 million reported in the prior quarter, and 0.7% above
the $2,231 million reported in last year’s third quarter. Sequential
sales growth was primarily driven by wireless and computer peripheral
applications, both of which also experienced strong double-digit, year-over-year
sales growth.
Gross profit increased 7.3% to $766 million from $714 million in the second
quarter of 2005. Gross margin was 34.1% in the third quarter compared
to 33.0% in the prior quarter. Enhanced product mix and manufacturing
performance drove the improvements in gross profit and gross margin, more
than offsetting continuing price pressure, especially in memory and standard
products.
Operating Expenses
Research and development expenses in the third quarter were $401 million
compared to $423 million in the prior quarter. Selling, general, and administrative
expenses were $248 million for the 2005 third quarter, down from $255
million in the prior quarter. Combined SG&A and R&D expenses in
the third quarter were 28.9% of net revenues, improving from 31.4% in
the second quarter. The decrease in operating expenses was largely attributable
to specific cost-control actions coupled with seasonal factors.
Operating Income, Net Income, and Earnings per Share
For the 2005 third quarter, the Company reported operating income of $102
million and net income of $89 million, or $0.10 per share. In the prior
quarter the Company reported operating income of $12 million and net income
of $26 million, or $0.03 per share.
The Company posted $12 million of impairment, restructuring charges, and
other related closure costs during the 2005 third quarter. In the prior
quarter, restructuring related expenses were $22 million.
In the third quarter, the effective average exchange rate for the Company
was approximately $1.30 to €1, similar to second quarter levels.
Cash Flow and Balance Sheet Highlights
Net cash from operating activities in the third quarter was $475 million
compared to $409 million in the prior quarter. Capital expenditures
were $284 million in the 2005 third quarter, compared to $363 million
in the prior quarter. Net operating cash flow* for the third quarter
increased to $173 million, compared to $23 million in the second quarter.
At October 1, 2005, ST had cash, cash equivalents, and marketable securities
of $1.77 billion. Total debt was $1.84 billion; net financial debt was
reduced from $276 million at the end of the prior quarter to $71 million
at October l, 2005; shareholders’ equity was $8.4 billion.
(*) Net operating cash flow is defined as net cash from operating activities
($475 million in the third quarter of 2005) minus net cash used in investing
activities ($302 million in the third quarter of 2005) excluding payments
for purchase of and proceeds from the sale of marketable securities
($0 in the third quarter of 2005).
President and CEO Remarks
Carlo Bozotti, President
and Chief Executive Officer commented, “ST’s third quarter
financial performance, which was well in line with our outlook, showed
sequential improvements in revenues, gross margin, and earnings per
share. Additionally, we were pleased by the significant increase in
net operating cash flow resulting from our capital management.
The quarter was also a period of steady progress across all of our key
objectives:
- ST had a good level of sequential sales growth in several key markets,
led by wireless. The effort to expand the key customer base also continued
to gain momentum. In addition, reflecting the importance of China and
ST’s leading presence there, we created a new regional organization
focused exclusively on this key market;
- On the product front, we continue to gain traction in the acceptance
of our new products. From wireless connectivity ASSP solutions to a
new wave of high-definition digital consumer offerings, we are compiling
important design wins which will help drive sales and margin improvement
in 2006 and beyond;
- Finally, our manufacturing cost-reduction initiatives are moving forward
steadily and contributed to the improved results in the quarter.
In summary, we are on track with our roadmap to improve overall corporate
performance. Our efforts are starting to become visible with improvements
in most of our key metrics to date. Nonetheless, there is more work
to be done.”
Additional Third Quarter 2005 Financial and Operating Data
The following tables and commentary provide a breakdown of revenues
and operating income (loss) by product group and segment revenues by targeted
market.
Net Revenues and Operating Income (Loss) by Group:
| In Million
US$ |
Q3
2005 |
| Group |
Net Revenues |
% of Net Revenues |
Operating
income (loss) |
| Application Specific Product Groups* |
1,263 |
56.2% |
81 |
| MLD (Microcontroller, Linear & Discrete Group) |
472 |
21.0% |
68 |
| MPG (Memory Products Group) |
501 |
22.3% |
(17) |
| Others (1)(2) |
11 |
0.5% |
(30) |
| |
|
|
|
| TOTAL |
2,247 |
100.0% |
102 |
* Automotive; Computer Peripheral; and Home, Personal, and Communication
products
(1) Net revenues of “Others” include revenues from sales
of Subsystems and other products not allocated to product groups.
(2) Operating loss of “Others” includes items such as impairment,
restructuring charges, and other related closure costs, start-up costs,
and other unallocated expenses such as strategic or special research
and development programs, certain corporate-level operating expenses,
certain patent claims and litigations, and other costs that are not
allocated to the product groups, as well as operating earnings or losses
of the Subsystems and Other Products Group. Certain costs, mainly R&D,
formerly in the “Others” category, have been allocated to
the groups.
All product groups increased revenues and improved their operating
margins on a sequential basis. Application Specific Product Groups’
revenue increased 2.3% sequentially, and operating profit increased
nearly 13% to $81 million. MLD sales were up 2.7% and operating income
was up nearly 5%. MPG sales grew 10.5% sequentially and the group had
an operating loss of $17 million, a significant improvement from the
$66 million loss recorded in the prior quarter. Flash memory sales increased
17% sequentially to $345 million.
Q3 2005 Net Revenues Breakdown by Market Segment
The following table estimates, within a variance of 5% to 10% in the
absolute dollar amount, the relative weighting of each of the Company’s
target market segments in the third quarter of 2005.
| |
% of Net Revenue |
Automotive
|
15% |
Consumer
|
17% |
| Computer |
18% |
| Telecom |
36% |
| Industrial & Other |
14% |
Three of the five market segments experienced sequential sales increases,
with both Telecom and Computer growing faster than the Company average
of 3.9%. Specifically, Telecom, the Company’s largest segment, grew
approximately 9% followed by Computer which grew approximately 8%. Consumer
reported a slight sequential increase of approximately 1%. Automotive
declined approximately 4% while Industrial & Others was essentially
flat.
First Nine Months 2005 Results
Net revenues for the first nine months of 2005 were $6,493
million, an increase of 0.9% over the 2004 first nine months revenues
of $6,432 million. Gross profit was $2,165 million, or 33.3% of net
revenues, compared to $2,376 million or 36.9% of net revenues for the
2004 first nine months. Operating income was $47 million compared to
$473 million in last year’s first nine months. Net income was
$83 million, or $0.09 per share, compared to net income of $414 million,
or $0.45 per diluted share in last year’s first nine months. Net
income included $137 million of aggregate charges for pre-tax impairment,
restructuring charges, other related closure costs, and one-time compensation
charges for the 2005 first nine months compared to $57 million of charges
for pre-tax impairment, restructuring charges and other related closure
costs for the 2004 first nine months.
Research and development expenses were $1,228 million, compared to
$1,131 million in the 2004 first nine months. Selling, general, and
administrative expenses were $766 million compared to $702 million in
the same period in 2004.
Capital expenditures for the first three quarters of 2005 were $1,211
million, consistent with the 2005 full year capital budget of $1.5 billion.
In the 2005 first nine months, the effective average exchange rate
for the Company was approximately $1.30 to €1, compared to $1.23
to €1 in last year’s first nine months.
First Nine Months 2005 Net Revenues and Operating Income (Loss)
by Group:
| In Million
US$ |
First
Nine Months 2005 |
| Group |
Net Revenues |
% of Net Revenues |
Operating
income (loss) |
| Application Specific Product Groups* |
3,686 |
56.8% |
218 |
| MLD (Microcontroller, Linear & Discrete Group) |
1,388 |
21.4% |
204 |
| MPG (Memory Products Group) |
1,375 |
21.2% |
(145) |
| Others (1)(2) |
44 |
0.6% |
(230) |
| |
|
|
|
| TOTAL |
6,493 |
100.0% |
47 |
* (1) and (2) defined in a previous table
Outlook
Mr. Bozotti observed, “We believe that moderate industry
growth will continue into the final quarter of 2005 and through 2006.
Within these dynamics, we expect that ST will continue to make solid
progress in improving the performance of the Company thanks to our ongoing
marketing, R&D, and cost actions.
Accordingly, we expect that ST’s sequential revenue growth in
the fourth quarter will be in the range between 3% and 9%. Gross margin
for the fourth quarter is expected to be about 36%, plus or minus one
percentage point.”
This guidance is based on an effective currency exchange rate for the
Company of approximately $1.22 = €1, which reflects current exchange
rate levels combined with the impact of existing hedging contracts.
Products, Technology and Design Wins
- In the digital consumer field, the company gained multiple design
wins for both the STB7100 and STi7109 single-chip H.264 high-definition
TV (HDTV) decoders with various OEMs addressing the worldwide operator
market. Volume production of the STB7100 HD decoder is also ramping
up in 90nm technology for use in IP set-top boxes (STBs) from major
European operators. And, in the European cable market, multiple operators
have adopted the STB5100 as the CPU/decoder solution for interactive
DOCSIS-based set-top boxes.
- ST announced its first range of STB decoders to embed Secure Video
Processor (SVP) capability, the next-generation open specification
for the protection of digital-video content. The two new devices –
the STB5525, which is also ST’s first single-chip solution to
support dual TV and dual DVR (Digital Video Recorder) requirements
in standard-definition STBs, and the STB5524, which targets the growing
DVR market – are ideal for satellite, cable, and terrestrial
TV services.
- The Company announced the STx5300 family of MPEG-2 decoder chips for low-cost
STBs and DVD recording that anticipate the increasing demands of interactive
TV applications by increasing the available computing power by over
five times compared to earlier devices. The chip uses the company’s
most advanced processor core, the ST200 VLIW (Very Long Instruction
Word) family, whose high performance has been certified at 300MHz
by the Embedded Microprocessor Benchmark Consortium and is intended
for use in high-performance multimedia System-on-Chip (SoC) devices.
- ST gained further success in Bluetooth as the company’s single-chip
STLC2500 recorded several design wins with major mobile phone manufacturers.
And in audio applications, Taiwanese company TwinMos selected ST’s
audio Bluetooth chipset for its high-quality audio wireless applications,
and has started production of Bluetooth wireless speakers and audio
dongles.
- In imaging, ST’s 2-megapixel SMIA-based camera modules and
image processors are now in volume production for use in mobile phones.
- In the wireline infrastructure area, ST won a major ASIC design,
which will be implemented in ST’s leading-edge 65nm process
technology. This design, won with a large telecomms customer, confirms
the leading role played by ST in state-of-the-art ASICs.
- For healthcare applications, ST introduced a lab-on-chip application
for DNA-based detection of sepsis-causing bacteria, using a diagnostic
panel from ST’s bio-tech partner, Mobidiag, and running on ST’s
In-Check platform. Providing faster and more reliable results at a
fraction of the cost and complexity of conventional laboratory systems,
the miniaturized solution enables early detection of disease, resulting
in better patient treatment choices and lower costs for healthcare
systems.
- In automotive, ST’s strategic partnership with Bosch has
been reinforced with the signature of an agreement for ST’s
next-generation BCD6S smart power process. Also in smart power, ST
gained a significant design win in battery charging from an important
European OEM.
- In the power train area, ST won designs for several new kits with
two major American OEMs for the European and American markets. In
the car body area, ST signed with a major North American OEM for an
advanced smart body-control module.
- In car safety, ST has extended its reach into the Japanese market
by winning a design from an important new OEM. Also in car safety,
ST won a design for a new ABS chipset with a major American OEM for
the worldwide market.
- In car radio and multimedia, ST won a design for an advanced digital-input
audio power amplifier with a leading North American customer for the
2007 model year. And finally in automotive, ST announced that it had
shipped a cumulative total of approximately 10.5 million XM Satellite
Radio Baseband Decoders to radio manufacturers, since starting production
in 2001. The 10.5 million XM Radio decoders have been delivered to
equipment manufacturers including Delphi and Pioneer, for vehicle,
portable and home radio receivers.
- In peripherals, ST started shipments of an advanced SATA (Serial
ATA) SoC to a major hard-disk drive manufacturer. Additionally, ST,
in conjunction with Synopsys, conducted and successfully completed
interoperability testing of its 90nm SATA MIPHY (Multi-Interface PHY)
Physical Layer interface macro-cell, aimed at designers integrating
SATA functions into SoC designs for hard-disk drive applications.
- In smart cards, ST announced that its established ST22L128 32-bit
secure microcontroller has received “Common Criteria”
security certification at Evaluation Assurance Level EAL5+ (Augmented),
the first 0.18-micron 32-bit secure MCU to be certified at this level.
- ST announced volume production of the ST19WP18 Trusted Platform
Module, and confirmed that more than one million of the TCG 1.2 (Trusted
Computing Group) solutions, complete with software stack, had been
delivered to a number of major PC motherboard makers.
- In RFID, ST introduced an ultra-high frequency contactless memory
chip, compliant with the latest Electronic Product Code™ (EPC)
specifications. ST’s XRAG2 RFID chip delivers interoperability,
enhanced security, and optimized performance for next-generation supply-chain
and logistics applications.
- In NOR Flash, multiple leading mobile phone manufacturers started
platform development based on ST’s 90nm 2-bit per cell 512-Mbit
NOR Flash. In NAND Flash, ST started high-volume shipments of 1.8V
2-Gbit NAND Flash in 90nm technology to a market-leading multimedia-phone
manufacturer. Also, production of ST’s 128-Mbit NAND Flash device
was transferred to 90nm process technology. The shrink to 90nm reduces
both the cost and the power consumption of the memory chip, which
is widely used in consumer equipment such as digital still cameras,
audio recorders, PDAs, STBs, printers, and bundled Flash cards.
- In microcontrollers, ST won a design for its ST7232A 8-bit microcontroller
at one of the top five Chinese air-conditioner manufacturers. ST also
expanded its family of USB MCUs with new products in its ST7263B series,
which has become the reference solution for a range of USB-based peripheral
products. ST also announced 8-bit ST7Lite Flash microcontrollers for
control applications, adding new embedded peripherals to the established
ST7Lite feature set.
- In power, ST introduced a reference-design platform for the emerging
electronic power-meter market. The versatility and low-cost provided
by electronic meters allows manufacturers to implement features that
were impractical with older mechanical designs, such as protecting
against meter tampering and theft of service; and automatic meter
reading.
- ST won an important design with a major North American server manufacturer
for its low-voltage power MOSFET, the STSJ100NHS3LL, which is implemented
in ST’s proprietary STripFET™ III technology. ST also
announced production of the first devices built using the second generation
of its MDmesh™ high-voltage power MOSFET technology.
- In high-end analog ICs, ST gained a design-win with a major Asian
manufacturer for its new Gamma-Correction circuit for LCD panel applications.
Some of the statements contained in this release that are not historical
facts are statements of future expectations and other forward-looking
statements (within the meaning of Section 27A of the Securities Act of
1933 or Section 21E of the Securities Exchange Act of 1934, each as amended)
based on management’s current views and assumptions and involve
known and unknown risks and uncertainties that could cause actual results,
performance, or events to differ materially from those in such statements
due to, among other factors:
- future developments of the world semiconductor market, in particular
the future demand for semiconductor products in the key application
markets and from key customers served by our products;
- pricing pressures, losses, or curtailments of purchases from
key customers as well as inventory adjustments from distributors or
other customers;
- changes in the exchange rates between the US Dollar and the
Euro, compared to the effective exchange rate of approximately $1.22=
€ , and between the US Dollar and the currencies of the other
major countries in which we have our operating infrastructure;
- our ability to develop new products in time to obtain design
wins as well as our ability to timely supply such products to meet
market demand;
- our ability to complete, successfully and in a timely manner,
our various announced initiatives to improve the efficiency of our
research and development programs, our manufacturing, and our overall
corporate performance;
- the anticipated benefits of research & development alliances
and cooperative activities;
- the ability of our suppliers to meet our demands for products
and to offer competitive pricing;
- changes in the economic, social, or political environment,
as well as natural events such as severe weather, health risks, epidemics
or earthquakes in the countries in which we and our key customers
operate; and
- our ability to obtain required licenses on third-party intellectual
property.
Such forward-looking statements are subject to various risks and uncertainties,
which may cause actual results and performance of our business to differ
materially and adversely from the forward-looking statements. Certain
such forward-looking statements can be identified by the use of forward-looking
terminology such as “believes,” “may,” “will,”
“should,” “would be,” “anticipates,”
or similar expressions, or the negative thereof, or other variations thereof,
or comparable terminology, or by discussions of strategy, plans, or intentions.
Some of these risk factors are set forth and are discussed in more detail
in “Item 3. Key Information—Risk Factors” included in
our Annual Report on Form 20-F for the year ended December 31, 2004, as
filed with the SEC on March 23, 2005. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described in this release
as anticipated, believed, or expected. We do not intend, and do not assume
any obligation, to update any industry information or forward-looking
statements set forth in this release to reflect subsequent events or circumstances.
Unfavorable changes in the above or other factors listed under “Risk
Factors” from time to time in our SEC filings, including in our
Form 20-F, could have a material adverse effect on our business or financial
condition.
Conference Call Information
The management of STMicroelectronics will conduct a conference call on
Wednesday, October 26, 2005, at 9:00 a.m. U.S. Eastern Time / 3:00 p.m.
CET, to discuss operating performance for the third quarter of 2005.
The conference call will be available via the Internet by accessing
the following Web address: www.vcall.com.
Those viewing the webcast should go to the Web site at least 15 minutes
prior to the call, in order to register, download, and install any necessary
audio software. The webcast will be available until Friday, November
4, 2005.
About STMicroelectronics
STMicroelectronics is a global leader in developing and delivering semiconductor
solutions across the spectrum of microelectronics applications. An unrivalled
combination of silicon and system expertise, manufacturing strength,
Intellectual Property (IP) portfolio and strategic partners positions
the Company at the forefront of System-on-Chip (SoC) technology and
its products play a key role in enabling today's convergence markets.
The Company’s shares are traded on the New York Stock Exchange,
on Euronext Paris and on the Milan Stock Exchange. In 2004, the Company’s
net revenues were $8.76 billion and net earnings were $601 million.
Further information on ST can be found at www.st.com
|
|
|
